China OTC Drug Sales Pummeled By Pseudoephedrine Restrictions
This article was originally published in The Tan Sheet
Executive Summary
Multinational cold and cough OTC products have suffered a serious setback in China, as government restricts usage of drugs containing pseudoephedrine.
China’s crackdown on the diversion of pseudoephedrine into illicit methamphetamine production, similar to restrictions imposed in the U.S., is slowing sales of multinational firms’ cough and cold products.
In September 2012, China’s State FDA issued a notice to reclassify OTC cold medicines that contain more than 30 mg of pseudoephedrine as prescription-only, and forced retail pharmacies to move the products out of open-shelf displays and into locked counters.
The agency – now renamed China FDA – also limited consumer purchases to two boxes, and required pharmacies to check and record the identification of customers who purchase PSE-containing products.
The agency in June 2012 warned drug firms and distributors that manufacturing and distributing licenses would be revoked if a company is found to have sold PSE-containing medicines that were diverted to meth production.
Sales of many cold and cough brands from multinationals have slowed since the changes were made. The most notable is GlaxoSmithKline PLC, which saw sales of its cold and cough brand Contac drop 54% in the second quarter from the year-ago period, following a 40% drop in the first quarter.
In China, GSK markets two versions of the product: Contac Red (compound dextromethorphan hydrobromide tablets), and Contac Blue (compound pseudoephedrine hydrochloride sustained-release capsules).
“Contac Blue was switched to Rx due to its high PSE, 90 mg,” GSK said in a statement. “Contac Red is following the behind-the-counter policies.”
Sales Down For Front-Of-Counter Products
Many retail pharmacies are unwilling to set up a separate locked counter for products containing any amount of PSE and have discontinued selling multinational firms’ drugs, which commonly contain the ingredient to relieve nasal congestion.
For example, sales of Bayer AG’s White & Black (acetaminophen) – or Baijiahei in Chinese – which contains 30 mg of PSE, also are slowing. Bayer acquired the brand as part of its acquisition of local company Topsun Science & Technology Co. Ltd. for $190 million in 2006 (Also see "Bayer Increases Chinese Presence With Topsun Cough/Cold Buy" - Pink Sheet, 30 Oct, 2006.).
“Since the heightened restrictions came into effect from September 2012, value sales of PSE cold and cough products in China have dropped by half while the overall cold and cough category has remained relatively stable. The largest share losses have been sustained by MNC brands/companies,” Bayer China said in a statement.
Bayer noted data from IMS Health show a drop of 49% for PSE cold and cough products as of March while the overall category dropped only 6%.
Another example is Bristol-Myers Squibb Co.’s Bufferin (acetaminophen, pseudoephedrine hydrochloride and dextromethorphan hydrobromide), which contains 30 mg of PSE.
“We see a negative impact in sales since the new rule on restricting the usage of OTC medicines containing pseudoephedrine was implemented,” BMS China said.
Johnson & Johnson’s Tylenol (acetaminophen), which contains 30 mg of PSE, also has seen a sales hit, although the company did not provide comment.
One multinational, Merck & Co. Inc., even cancelled plans to launch a product, Clarinase (pseudoephedrine/loratadine), which had been approved in China. Clarinase contains 120 mg of PSE.
Forced OTC Price Cuts
In another drag on earnings, some popular OTC drugs have been added to China’s Essential Drug List, leaving them vulnerable to government price cuts.
For example, GSK’s pain reliever Fenbid (ibuprofen) was on the EDL when it was most recently expanded in March (Also see "Mixed Results: A Closer Look At China’s EDL System After Expansion" - Scrip, 25 Jul, 2013.). The company reported a 32% year-over-year sales decline of Fenbid in the second quarter, its first quarter on the EDL.
The overall OTC market in China reached $21 billion (RMB 130 billion) in 2012, according to IMS. However, growth has slowed to 6.8%, down considerably from double-digit growth seen over the past decade.
Moreover, as the government works to better implement the EDL, pharmacies are losing business to primary health care institutions. Given cost increases, OTC distributors and pharmacies are also losing margin, which could be a problem for drug makers.
Sanofi is one company that has run into trouble with consumer health care distributors in China, particularly in the second- and third-tier markets. In these smaller markets, distributors have “lost most of their margin, and so the distribution system to some extent collapsed,” said Hanspeter Spek, Sanofi’s former president of global operations. During an earnings call in February, Spek indicated Sanofi would “drastically reduce” its number of consumer health care distribution partners in China (Also see "Sales & Earnings In Brief" - Pink Sheet, 11 Feb, 2013.).